Oil plunges from 2-year highs ahead of Opec meeting iStock

Oil benchmarks slid lower on Monday (27 November) ahead of a meeting of Opec and non-Opec oil ministers, on signs of Russian reluctance to roll over ongoing production cuts of 1.8 million barrels per day (bpd) and an uptick in US output.

At 4pm GMT, the West Texas Intermediate front-month futures contract was down 1.82% or $1.07 to $57.88 per barrel, while Brent was down 0.33% or 21 cents at $63.65 per barrel.

The declines follow the latest Baker Hughes rig count, which pointed to an uptick in US production.

The US rig count came in 8 rigs higher from last week to 923, with oil rigs up 9 to 747, the oilfield services company said, as many on Wall Street continue to maintain their 2018 US oil production forecast of 10 million barrels per day (bpd).

The move would put the US alongside Russia and Saudi Arabia in 10 million bpd club of oil producers.

Meanwhile, unconfirmed reports suggest Moscow is minded to renegotiate the ongoing cuts, with its contribution largely underpinning 500,000 bpd cut pledged by 10 non-Opec participants.

Reports also suggest Russia is not keen on extending a deal that still has some months to run before it expires in March 2018.

Bjarne Schieldrop, chief commodities analyst at Nordic banks SEB, said: "The oil market has placed all chips on the long side (i.e. bets to the upside), betting on an extension of Opec and non-Opec production cuts.

"As such, the market is rigged for disappointment, with a possible short-term sell-off should Opec disappoint."

Mihir Kapadia, chief executive officer of Sun Global Investments, said supply side influences should not be the only driver.

Crude Oil Pricing
Opec boxed in? Oil futures could slump if cartel fails to extend production cuts. Reuters

"The International Energy Agency (IEA) has cast doubts over the October perception of tightening fuel markets. The IEA also warned of a gloomy outlook for the commodity in 2017 – 2018 and has caused minor turbulence in the oil markets. This should not be discounted."

Factoring in all of that, Opec has probably boxed itself in, according to Hussein Syed, chief market strategist at FXTM.

"The recent surge in oil prices reflects expectations that production cuts will remain in play for 2018 and failing to do that, will have negative consequences. At this stage, I think that the upside in Brent should remain limited, if tensions in the Middle East don't escalate.

"However, the downside move will look ugly if Opec and Russia fail to show a strong commitment to extending the production cuts. Investors and speculators are sitting on record net-long positions and upsetting the oil bulls at this stage isn't a good idea."